City, state cell phone taxes on the rise

USA TODAY
City, state cell phone taxes on the rise
By Dennis Cauchon, USA TODAY
Cell phone users are being hit by new taxes as state and local governments scramble to replace declining tax revenue from traditional phones.

The new charges are adding $2 to $10 or more a month to cell phone bills on top of existing federal and state taxes and fees for emergency 911 communications. Examples:

•Thirty-two of Virginia's 39 cities have levied cell phone taxes since the Legislature approved the tax in 2003. Most recently: Alexandria approved a $3-a-month tax last week.

•Baltimore added a $3.50 monthly tax in September.

•Oregon's Legislature is considering a 5% tax, the Missouri Legislature a 3% or 4% tax.
THE COST OF CONVENIENCE
State and local taxes on cell phone service vary widely. Also applying in every state is a 6.05% federal levy composed of an excise tax and a fee that subsidizes service to low-income homes and remote areas. Average taxes as of Jan. 1.

Many state and local governments consider new cell phone taxes necessary to recoup money lost from a drop in the number of standard wired phones. The number of wired phone lines nationwide fell from 167 million in 2000 to 132 million in 2004, the Federal Communications Commission reports. cell phone subscribers rose from 109 million to 182 million during that time.

The wireless industry says cell phones are already taxed heavily and often unfairly. The industry is funding a Web site — www.stopaddingtomybill.com — as part of its lobbying effort to squelch the new taxes.

"People can just look at their cell phone bill and see the taxes are already excessive," says Joseph Farren, spokesman for CTIA-The Wireless Association, an industry trade group. He says taxes accounted for about $9 of the average $51 monthly cell phone bill last year.

Farren says the "watershed event" that started the new round of taxation was Pennsylvania's approval of a 5% cell phone tax in 2003. Other state and local governments have followed suit or are considering it.


State State/ Federal
local taxes Total
taxes
------ ----- ------- ------
Ala. 7.42% 6.05% 13.47%
Alaska 4.02% 6.05% 10.07%
Ariz. 11.05% 6.05% 17.10%
Ark. 10.19% 6.05% 16.24%
Calif. 13.18% 6.05% 19.23%
Colo. 9.35% 6.05% 15.40%
Conn. 6.40% 6.05% 12.45%
Del. 5.46% 6.05% 11.51%
D.C. 12.54% 6.05% 18.59%
Fla. 16.10% 6.05% 22.15%
Ga. 7.49% 6.05% 13.54%
Hawaii 7.47% 6.05% 13.52%
Idaho 2.19% 6.05% 8.24%
Ill. 15.52% 6.05% 21.57%
Ind. 9.57% 6.05% 15.62%
Iowa 6.51% 6.05% 12.56%
Kan. 11.33% 6.05% 17.38%
Ky. 9.93% 6.05% 15.98%
La. 4.37% 6.05% 10.42%
Maine 6.51% 6.05% 12.56%
Md. 10.57% 6.05% 16.62%
Mass. 5.61% 6.05% 11.66%
Mich. 7.05% 6.05% 13.10%
Minn. 8.07% 6.05% 14.12%
Miss. 9.02% 6.05% 15.07%
Mo. 10.37% 6.05% 16.42%
Mont. 4.96% 6.05% 11.01%
Neb. 15.10% 6.05% 21.15%
Nev. 1.11% 6.05% 7.16%
N.H. 7.85% 6.05% 13.90%
N.J. 7.82% 6.05% 13.87%
N.M. 7.61% 6.05% 13.66%
N.Y. 16.16% 6.05% 22.21%
N.C. 7.62% 6.05% 13.67%
N.D. 10.90% 6.05% 16.95%
Ohio 7.63% 6.05% 13.68%
Okla. 9.56% 6.05% 15.61%
Ore. 2.23% 6.05% 8.28%
Pa. 13.52% 6.05% 19.57%
R.I. 14.55% 6.05% 20.60%
S.C. 6.47% 6.05% 12.52%
S.D. 11.97% 6.05% 18.02%
Tenn. 11.52% 6.05% 17.57%
Texas 14.17% 6.05% 20.22%
Utah 12.66% 6.05% 18.71%
Vt. 7.27% 6.05% 13.32%
Va. 7.59% 6.05% 13.64%
Wash. 16.21% 6.05% 22.26%
W.Va. 3% 6.05% 9.05%
Wis. 5.55% 6.05% 11.60%
Wyo. 10.64% 6.05% 16.69%
U.S. avg. 9.04% 6.05% 15.09%
Source: Scott Mackey, State Tax Notes

State and local governments have long taxed land-line telephones, but cell phones had escaped most of these taxes. An exception: In California, about 160 local governments have cell phone taxes, including 10% in Los Angeles and 7.5% in San Francisco.

"The question is, does it make sense to treat one phone differently from another?" asks Ken Fellman, mayor of Arvada, Colo., a Denver suburb, and head of a telecommunications committee for the National League of Cities.

Wireless companies say they shouldn't be treated the same as old phone companies because they are not monopolies and do not use public rights of way for phone lines. "The wireless industry has never been a utility and shouldn't be treated that way," Farren says.

But local governments are changing tax laws to reflect changes in the economy. cell phone revenue grew from $56 billion in 2000 to $102 billion in 2004. During that time, land-line revenue dropped from $228 billion to $197 billion, the Telecommunications Industry Association says.

Independence, Mo., will collect $1.75 million in taxes next year from land-line phones, down from a peak of $2.4 million in 2002. "A phone is a phone is a phone," city councilman Jason White says. "A cell phone company doing business in our community should pay the same taxes."

Cell phone taxes earmarked for emergency services are rising quickly, too. West Virginia last week doubled the state's 911 service fee on cell phones to $3 per month.